Should You Hold Carvana After Its 88% Rally and Mixed Valuation Signals?

Wondering whether to hang tight with your Carvana shares, double down, or take your profits off the table? You’re not alone. Investors everywhere are watching with curiosity as Carvana’s stock has delivered a wild ride, making headlines and keeping everyone guessing about what’s next. Over the last three years, the return has been a staggering 1963.3%, while year-to-date the stock is up another 88.3%. If you zoom in, the recent 7-day dip of -4.3% contrasts sharply with a 1.9% gain over the past month and an eye-catching 109.0% leap over one year. It’s clear something significant has been in play, whether it’s shifting market sentiment, renewed faith in online auto platforms, or simply investor enthusiasm for turnaround stories.

But with Carvana’s last close at $375.72 and momentum that’s hard to ignore, the conversation turns inevitably to valuation. Is the company undervalued despite all the hype, or have investors already priced in everything positive? When Carvana is evaluated using six different valuation checks, it turned out to be undervalued in zero, giving it a value score of 0. Before you make any decisions, whether buying, holding, or walking away, it’s worth breaking down the usual ways analysts gauge what the company is worth. Let’s dive into those standard valuation approaches first. Stay tuned—there’s an even smarter way to look at the big valuation picture, and we’ll reveal that at the end.

Carvana scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Carvana Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting them back to today’s value. This process gives investors a view of what the business could be worth based on expected financial performance, taking into account both analyst forecasts and reasonable long-term trends.

For Carvana, the DCF analysis starts with its last twelve months’ Free Cash Flow (FCF) of $565.5 Million. Analysts anticipate this figure will rise sharply, with their forecasts and model extrapolations pointing to an FCF of $3.1 Billion by 2029. This significant projected growth underpins the model’s valuation. Simply Wall St combines these shorter-term analyst insights with longer-range estimates, building a ten-year outlook to determine the company’s fair value.

After crunching the numbers, the DCF model calculates an estimated intrinsic value of $325.73 per share for Carvana. With the current share price sitting at $375.72, this suggests Carvana is about 15.3% above what its cash flows justify. In other words, it appears overvalued on a DCF basis.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Carvana.

Our Discounted Cash Flow (DCF) analysis suggests Carvana may be overvalued by 15.3%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Carvana Price vs Earnings (PE)

For profitable companies like Carvana, the Price-to-Earnings (PE) ratio is a widely trusted measure of valuation. It tells investors how much they are paying for each dollar of current earnings, making it a quick but effective check on whether a stock is reasonably priced. Growth expectations and perceived business risks both play a role here. A higher growth outlook or lower risk profile typically justifies a higher PE ratio, since investors are willing to pay more for strong or stable earnings streams.

Carvana’s current PE stands at 92.2x, which is dramatically higher than the Specialty Retail industry average of 17.3x, as well as the peer average of 22.5x. That gap signals that the market has set ambitious expectations for Carvana’s future growth and profitability, reflecting both the company’s reinvention story and its volatile past.

To bring more context, Simply Wall St’s proprietary “Fair Ratio” considers not only Carvana’s growth prospects but also its industry, profit margin, market capitalization, and the unique risks it faces. This tailored metric, at 41.5x, offers a more nuanced view than basic industry or peer comparisons, since it adapts to the company’s specific dynamics rather than relying on one-size-fits-all benchmarks.

Since Carvana’s actual PE ratio of 92.2x is well above its Fair Ratio of 41.5x, the stock appears overvalued when judged by earnings multiples that factor in growth and risk more appropriately.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Carvana Narrative

Earlier, we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. Narratives take investing beyond spreadsheets, allowing you to build and share your personal story about a company by combining your beliefs about its future growth, profitability, and potential risks with your own forecasts to estimate a fair value.

Rather than just crunching numbers, a Narrative weaves together the reasons you think a business will win or struggle with how those reasons translate into financial forecasts and a defensible estimate of fair value. Narratives on Simply Wall St are accessible, straightforward, and widely used within the Community page by millions of investors like you.

They make it easier to see whether you think a stock is a buy, hold, or sell by directly comparing your fair value with the current market price. Best of all, Narratives are dynamic. If market news breaks or new earnings are reported, your Narrative can be instantly updated to reflect the latest information.

For example, you might believe Carvana’s technology and rapid expansion justify a $500 price target, while another investor’s more cautious Narrative, based on profit risks and market challenges, values it closer to $330. Narratives let you invest with conviction, based on your own understanding and evolving insights.

Do you think there's more to the story for Carvana? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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